CJEU rules on Greek Support to The Agricultural Sector under the 2008 and 2009 State Aid Frameworks: A Blow to the Commission's Waiver of Discretion? (C-431/14 P)

In its Judgment of 8 March 2016 in Greece v Commission (ELGA), C-431/14 P, EU:C:2016:145, the Court of Justice of the European Union (CJEU) ruled on the compatibility of certain measures of financial support to the Greek agricultural sector in the aftermath of the 2008 financial crisis with the EU rules on State aid--ie mainly, Art 107 TFEU and the Temporary Community Framework for State aid measures adopted by the Commission in 2008 (the 2008 TCF), as amended in 2009 (the 2009 amended TCF).

The Judgment is interesting because it assesses the boundaries of the temporary discretionary measures adopted by the Commission in order to flexibilise the enforcement of EU rules in times of economic and financial distress, on the basis that they aim 'to remedy a serious disturbance in the economy of a Member State', ex Art 107(3)(b) TFEU. In particular, the ELGA Judgment assesses whether Member States can validly raise arguments based on Art 107(3)(b) TFEU directly, regardless of the Commission's delineation of its State aid policy based on that same legal basis. Or, in simple terms, whether a valid Art 107(3)(b) TFEU can exist outside of the (temporary) scope of the 2008 TCF and the 2009 amended TCF. The case may seem very specific because of its link to the economic crisis. However, the CJEU makes some broader points about the Commission's discretion that are worth taking into careful consideration.

This discussion is relevant from a legal perspective, due to the clarification of the so far unknown exemption of the State aid prohibition of Art 107(1) TFEU on the basis of Art 107(3)(b) TFEU regarding aid aimed to remedy a serious disturbance in the economy of a Member State' [see P Nicolaides & IE Rusu, 'The Financial Crisis and State Aid' (2010) 55(4) The Antitrust Bulletin 759-782]. It is also relevant for the policy implications of the CJEU's support for the Commission's intervention [for discussion of a general framework, see H Kassim & B Lyons, 'The New Political Economy of EU State Aid Policy' (2013) 13(1) Journal of Industry, Competition and Trade 1-21; and TJ Doleys, 'Managing the Dilemma of Discretion: The European Commission and the Development of EU State Aid Policy' (2013) 13(1) Journal of Industry, Competition and Trade 23-38].

The case of the Greek support to the agricultural sector through ELGA

The specific case concerns a long-running action of the Greek State for the annulment of a 2011 Commission Decision concerning compensation payments made by the Greek Agricultural Insurance Organisation (ELGA) in 2008 and 2009, which the General Court (GC) upheld on appeal (T‑52/12, EU:T:2014:677). One of the difficulties with this case is the sequence of events. From the regulatory perspective, it is worth stressing that the 2008 TCF, which entered into force in 17 December 2008, did not cover aid to the agricultural sector. This was eventually made clear in the 2009 amended TCF, according to which

The possibility under [the TCF] to grant a compatible limited amount of aid does not apply to undertakings active in the primary production of agricultural products. Farmers, however, encounter increased difficulties to obtain credit as a consequence of the financial crisis ... it is appropriate to introduce a separate compatible limited amount of aid for undertakings active in the primary production of agricultural products.

Specifically, the 2009 amended TCF provided that

The Commission will consider such State aid compatible with the common market on the basis of Article [107(3)(b) TFEU], provided all the following conditions are met: ... (h) … Where the aid is granted to undertakings active in the primary production of agricultural products ..., the cash grant (or gross grant equivalent) does not exceed EUR 15,000 per undertaking ...

This took effect on 28 October 2009, which raises a practical temporary difficulty because, '[f]ollowing protests in January 2009 by a large number of Greek agricultural producers about the losses suffered by them in 2008 as a result of adverse weather conditions..., the Hellenic Republic provided that compensation aid of EUR 425 million would be paid to producers on an exceptional basis by ELGA' (C-431/14 P, para 11). Upon investigation, the Commission found that most of that aid was incompatible with the internal market and, in particular, that '[t]he compensation aid of EUR [387.4 million] granted to producers on dates before 28 October 2009 is incompatible with the internal market' (C-431/14 P, para 14, emphasis added).

The issue is that, in plain terms, the Commission rejected Greece's claims that the exemption foreseen in Art 107(3)(b) TFEU could be directly applied in the case because of the economic difficulties that Greece had been experiencing. The Commission rejected such claim on the basis that Art 107(3)(b) TFEU had to be applied within the boundaries of the policy documents developed to that effect, ie the 2008 TCF and the 2009 amended TCF, which could only apply for the future--that is, only from their respective dates of entry into force--which, as the agricultural sector is concerned, was that of the 2009 amended TCF: 28 October 2009. The GC upheld the Commission's approach in the following terms

185 ... it is clear that, contrary to what the Hellenic Republic claims, the Commission had to base its decision on the [TCF] and not directly apply Article 107(3)(b) TFEU in order to assess the compatibility of the payments made by ELGA in 2009 on account of the economic crisis experienced in Greece.
186 It is clear from the case-law that, in adopting rules of conduct and announcing by publishing them that they will henceforth apply to the cases to which they relate, the Commission imposes a limit on the exercise of its aforementioned discretion and cannot depart from those rules without being found, where appropriate, to be in breach of general principles of law, such as equal treatment or the protection of legitimate expectations (see judgment[s] in Germany and Others v Kronofrance, [C‑75/05 P and C‑80/05 P, EU:C:2008:482], paragraph 60 and the case-law cited, and … Holland Malt v Commission, C‑464/09 P, [EU:C:2010:733], paragraph 46).
187 ... in the specific area of State aid, the Commission is bound by the guidelines and notices that it issues, to the extent that they do not depart from the rules in the Treaty (see judgment in Holland Malt v Commission, [C‑464/09 P, EU:C:2010:733], paragraph 47 and the case-law cited).
188 Therefore, it is necessary to reject the arguments of the Hellenic Republic to the effect that, on account of the serious disturbance in the Greek economy due to the economic crisis experienced in Greece since the end of 2008 and in 2009, the Commission should have declared the payments made by ELGA in 2009 compatible directly on the basis of Article 107(3)(b) TFEU (T-52/12, paras 185-188, emphasis added).

The CJEU has now taken the same line of argument, but has introduced important nuances in determining that

69 ... as the General Court stated in paragraphs 186 and 187 of the judgment under appeal, the Court has also consistently held that, in adopting rules of conduct and announcing by publishing them that they will henceforth apply to the cases to which they relate, the Commission imposes a limit on the exercise of its aforementioned discretion and, in principle, cannot depart from those rules without being found, where appropriate, to be in breach of general principles of law, such as equal treatment or the protection of legitimate expectations (judgments in Holland Malt v Commission, C‑464/09 P, EU:C:2010:733, paragraph 46, and Banco Privado Português and Massa Insolvente do Banco Privado Português, C‑667/13, EU:C:2015:151, paragraph 69).
70 However, in the specific area of State aid, the Commission is bound by the guidelines that it issues, to the extent that they do not depart from the rules in the TFEU, including, in particular, Article 107(3)(b) TFEU (see, to that effect, judgment in Holland Malt v Commission, C‑464/09 P, EU:C:2010:733, paragraph 47), and to the extent that their application is not in breach of general principles of law, such as equal treatment, in particular where exceptional circumstances, different from those envisaged in those guidelines, distinguish a given sector of the economy of a Member State.
71      Consequently, first, the Commission may not fail to have regard to Article 107(3) TFEU by adopting guidelines vitiated by an error of law or a manifest error of assessment, nor may it waive, by the adoption of guidelines, the exercise of the discretion that that provision confers on it. Further, when, in the exercise of that discretion, it adopts guidelines of that nature, these must be kept under continuous review for the purposes of anticipating any major developments not covered by those measures.
72      Secondly, the adoption of such guidelines does not relieve the Commission of its obligation to examine the specific exceptional circumstances relied on by a Member State, in a particular case, for the purpose of requesting the direct application of Article 107(3)(b) TFEU, and to provide reasons for its refusal to grant such a request, should the case arise.
73      In the present case, it is not in dispute that, precisely because of the effect of the economic crisis experienced by the Member States, and in particular, the Hellenic Republic, on the primary agricultural sector of the European Union, the Commission exercised the discretion conferred on it by Article 107(3)(b) TFEU by adopting the TCF and then the amended TCF, since both the former and the latter expressly mention that sector.
74      However, the fact remains that although the Hellenic Republic claimed before the General Court that Article 107(3)(b) TFEU ought to be applied directly to the facts of the case, notwithstanding the existence of the rules of conduct set out in the TCF and the amended TCF, it did not argue, in support of that claim, that there were, in the present case, specific exceptional circumstances in the primary agricultural sector concerned ...
75      Indeed, it is apparent from the documents in the file that the material that the Hellenic Republic put before the General Court was intended to establish the existence of a very serious disturbance affecting the Greek economy from the end of 2008 and in 2009, but it was not such as to prove to the requisite legal standard that that economy was faced with specific exceptional circumstances that ought, in this case, to have led the Commission to assess the aid at issue directly in the light of Article 107(3)(b) TFEU (C-431/14 P, paras 69-75, emphasis added).

implications of the cjeu elga judgement

In my view, the implications of the case are two-fold, and they concern, first, the relationship between the Commission's disclosed State aid policy and the discretion that Art 107(3) TFEU gives it; and, second, the interpretation of Art 107(3)(b) TFEU in particular.

Regarding the issue of the extent to which the Commission can deviate from adopted and publicised State aid policy, the CJEU has now made it clear that 'in adopting rules of conduct and announcing by publishing them that they will henceforth apply to the cases to which they relate, the Commission imposes a limit on the exercise of its aforementioned discretion and, in principle, cannot depart from those rules without being found, where appropriate, to be in breach of general principles of law, such as equal treatment or the protection of legitimate expectations' (para 69, emphasis added); and that 'the Commission is bound by the guidelines that it issues, to the extent that they do not depart from the rules in the TFEU ... and to the extent that their application is not in breach of general principles of law, such as equal treatment, in particular where exceptional circumstances, different from those envisaged in those guidelines, distinguish a given sector of the economy of a Member State' (para 70, emphasis added). It is thus plain that 'the Commission may not fail to have regard to Article 107(3) TFEU ... nor may it waive, by the adoption of guidelines, the exercise of the discretion that that provision confers on it' (para 71, emphasis added).

Somehow, the CJEU has made it clear that the Commission cannot hide behind its disclosed State aid policy if there are relevant circumstances that require a specific discretionary decision. This can be far reaching because the CJEU ELGA Judgment clearly opens the door to Member States' claims beyond the boundaries set by the Commission in its disclosed State aid policy, and may be the end of an era of increasing push for box-ticking exercises and for the Commission's reliance on its predetermined conditions for State aid exemption under block exemption regulations. This may well lead to an increase in litigation by Member States, which may be more willing to challenge the Commission's 'self-enforcement' approach in its recently adopted State aid 2.0 strategy [for discussion, see A Sanchez-Graells, “Digging itself out of the hole? A critical assessment of the Commission’s attempt to revitalise State aid enforcement after the crisis” (2016) Journal of Antitrust Enforcement, forthcoming].

The bit that puzzles me is that, in the specific circumstances of Art 107(3)(b) TFEU and its use in the aftermath of the economic and financial crisis, the Commission had not disclosed any policy documents prior to the 2008 TCF and the 2009 amended TCF. Thus, the issue whether the Commission could block any claims prior to the entry into force of those instruments could also have triggered an argument of retroactive application of beneficial discretionary measures, which I would have expected to read in a case like this. Somehow, the issue of the inter-temporal validity of policy and legal instruments in EU economic law continues to raise unresolved issues.

Regarding the specific interpretation of Art 107(3)(b) TFEU, the implications of the ELGA Judgment are mixed. On the one hand, it seems clear that the CJEU recognises that Member States can claim the existence of specific circumstances in its economy, and this would tail up with the drafting of Art 107(3)(b) TFEU, which indicates that the exemption is available for aid aimed to remedy a serious disturbance in the economy of a Member State. On the other hand, though, the CJEU seems to require Member States to demonstrate that those circumstances 'distinguish a given sector of the economy of a Member State' (para 70) and, in the specific case, 'specific exceptional circumstances in the primary agricultural sector concerned' (para 74). This seems problematic on two fronts.

First, it clearly goes beyond the wording of Art 107(3)(b) TFEU, which has no reference to specific sectors of the economy and seems to accept the possibility of exceptional rules aimed at a distressed economy as a whole. One is left with the doubt whether this requirement to have demonstrated specific exceptional circumstances in the agricultural sector derives from the CJEU's unwillingness to quash the Commission's decision--reading the case, it seems clear that the controversy about the existence of sufficient evidence in the file could have been a driver for this outcome--or, on the contrary, it is a purposeful interpretation of Art 107(3)(b) TFEU in a way that reduces its scope. If the latter is the real reason, then the CJEU could have been more explicit in determining the parameters of such narrow interpreation, not least because of the absence of a sufficient volume of case law that interprets this provision.

And, second, it seems to create a significant limitation in the Member States' design of their macroeconomic (emergency) policies in a way that some could argue falls foul of the principle of subsidiarity. In that regard, the CJEU could have been more explicit as to the reasons for the imposition of a requirement of economic intervention in the specific sectors affected by the serious economic disturbance--which, in my view, would be relatively easy to support on the basis of the general requirements of suitability and proportionality applicable to State measures that aim to benefit from exemptions of Treaty prohibitions under EU economic law, generally.

The @EU_Commission Report on #Competition Policy 2012: An interesting piece of #softlaw?

The European Commission has published its Report on Competition Policy 2012. Its theme is the 20th anniversary of the relaunch in 1992 of the European Single Market and the Report focuses on the role of competition policy in leveraging the Single Market for growth--which is interesting, although a clearer connection with the current Europe 2020 Strategy could have been included.

The Report describes the enforcement activities of the Commission in those sectors where it was more active in 2012, which are described as: "sectors of systemic and cross-cutting importance to the EU economy: financial services; key network industries such as energy, telecoms and postal services; as well as knowledge-intensive markets such as smartphones, e-books and pharmaceuticals".

The Report is full of interesting remarks by the Commission, some of which may be excessively optimistic and highly contingent on difficult to foresee future developments. For instance, the assumption that "the bulk of the [State aid] activity involved the restructuring of banks, so that no more taxpayer funding will be needed for the foreseeable future" may sound excessively triumphalist and optimistic in case of a further deterioration of the economy of any of the Member States (such as Spain, to mention one).

It also shows the first experiences applying the 2012 new SGEI rules, which concerned the postal sector in the UK:
In March 2012, the Commission adopted two decisions concerning UK Post Office Limited based on the new SGEI framework. The Commission found that the aid did not exceed the net cost of the public service mission entrusted to the Post Office Ltd and that its entrustment complied with public procurement rules. Moreover, the entrustment letter and funding agreement governing the payment of the compensation contained appropriate provisions to incentivise an efficient provision of the public service, in line with the Post Office Ltd's strategic plan for the period 2012-2015 which aims at modernising and improving the provision of services over its network according to yearly efficiency milestones.

The content of the UK postal sector decisions will be highly relevant to the roll-out of the 2012 SGEI Framework, which is likely to gain relevance as the reform of the public sector picks its expected pace in the UK and elsewhere in the EU. Hence, the criteria used in these decisions and the clear (but naive) connection that they establish with the mandatory compliance of EU public procurement rules need to be properly understood and duly stressed. The Commission itself emphasized that:
the UK government commits to ensure, in the future, the compliance of all [Poste Office]'s public contracts with European Union public procurement rules [...]. This commitment is particularly important in the light of the link between Product SGEI and Network SGEI. The Commission will also check that this commitment has been respected in case of extension of the subsidies for the Network SGEI beyond 2015 or adoption of new State aid measures for the financing of that SGEI (Decision SA.33054 (2012/N)–United Kingdom, para. 68).

For commentary on these (stronger) interaction between competition, State aid and public procurement rules, see Koukiadaki, A (2012): ‘EU governance and social services of general interest: When even the UK is concerned’, in: Barbier, Jean-Claude (ed.) EU Law, Governance and Social Policy European Integration online Papers (EIoP), Special Mini-Issue 1, Vol. 16, Article 5  , and Sánchez Graells, A, 'The Commission’s Modernization Agenda for Procurement and SGEI' in Szyszczak & van de Gronden (eds), Financing SGEIs: State Aid Reform Modernisation, Series Legal Issues of Services of General Interest (TMC Asser Press/Springer, 2013) 161-181

On a different note, the Report has some signs of dumbing down competition discourse that, in my opinion, do not contribute to make the policy more accessible and, on the contrary, may water down important debates, such as the current State Aid Modernisation process (SAM). In that regard, I find it surprising that the European Commission explains the main rationale of SAM in these terms:
SAM's aim is to facilitate the treatment of aid which is well-designed, targeted at identified market failures and objectives of common interest, and least distortive. Aid which does not provide real incentives for companies crowds out private investment and keeps inefficient and non-viable companies on life support ("bad aid"). Good aid strengthens the Single Market while bad aid weakens it (footnote omitted, emphasis added).

What may be acceptable for a Commissioner's Speech (most likely not even for that), sounds odd and puerile in an official Report from the European Commission. Maybe it is just a matter of etiquette, but a different tone should be expected from one of the largest competition law enforcers in the world.

Finally, overall, the times where the European Commission used the Annual Report to announce changes in policy seem long gone and it is hard to see that the contents of the 2012 Report can be considered (relevant) soft law--a situation that reverses a clear trend of using this document to set the agenda for the future (as analysed by Stefan in her recent book Soft Law in Court). 

This is not (well, yes) binding, but (maybe) you can disregard it. AG Kokott on soft law and EU competition policy

On 6 September 2012, AG Kokott issued her Opinion in case C‑226/11 Expedia Inc. The case is about the effects of soft law instruments adopted by the European Commission on other competition authorities and courts entrusted with the enforcement of EU Competition Law. Or, as the AG shortly puts it, the CJEU must decide if  the notices of the European Commission in the field of competition law are binding on the national competition authorities and the national courts.

The question has arisen in relation to the ‘de minimis notice’, in which the Commission sets out the circumstances under which it presumes that there is an appreciable restriction of competition within the meaning of Article 101 TFEU. Given the narrow scope of the question (ie whether the de minimis notice is binding), it is odd that the case has actually gone through, since the notice itself clearly indicates that "[a]lthough not binding on them, this notice also intends to give guidance to the courts and authorities of the Member States in their application of Article [101 TFEU]" (para. 4, emhasis added).

The answer should almost be automatic: "No, it is not binding". However, since most domestic EU rules (directly or indirectly, expressly or implicitly, willingly or reluctantly) incorporate the corpus of Commission's competition notices, the question becomes trickier than a mere literalist approach to the (originally) soft law instruments would suggest.

Therefore, as clearly indicated by the AG, given that the case affects the 'enforcement thresholds' for EU Competition rules, it can be seen as a matter involving the delineation of the scope of application of EU Competition Law: "The Court’s reply to the question referred will to a large extent determine the scope which the national competition authorities and courts will have in the future when applying Article 101 TFEU" (AG Kokott in C-226/11, at para 5).

However, the general framework in which the reference for a preliminary ruling by the French Cour de Cassation has been assessed by AG Kokott in Expedia relates to the broader topic of the legal nature and effects of soft law instruments in the area of EU Competition Law (and, more generally, on the topic of 'soft EU Law', although in most other policy areas it is much less used)--which oddly enough (and probably not unexpectedly), are in a fast and steep 'hardening' process that might as well end up equating them to full EU legislative instruments, at least in terms of their legal effects.

This topic is a personal favourite of mine, and one which is due to raise a myriad of cases in the decentralised system of (private) EU Competition Law enforcement (as discussed in Sánchez Graells, A., 'Soft Law and the Private Enforcement of the EU Competition Rules' in JL Velasco San Pedro (ed), Private Enforcement of Competition Law, Valladolid, Lex nova, 2011, p. 507-520,  http://ssrn.com/abstract=1639851).

Even if the wording of her opinion seems to adjust to the natural, automatic answer already hinted at:  "it must be concluded that the de minimis notice is not, of itself, intended to produce binding legal effects" (see AG Kokott in C-226/11, at paras. 26 to 34), actually, her position is almost the opposite. In my reading of her opinion, AG Kokott basically submits to the CJEU that Commission's notices are (somehow) binding on the national competition authorities and the national courts in that they must take them in due account when conducting competition analysis, but that authorities and courts can depart from the content of the notices as long as they prove in some way that the content of the notice is inadequate (in the case at hand)--which brings an onus of proof to the picture that seems to tilt the standard position to the Commission's soft law instruments indeed having (initial) binding effects.

This is a rather creative and flexible solution (which circumvents the standard position that soft law instruments cannot generate binding legal effects), for sure, but one that leaves many questions unanswered and that merits some further thought. In that regard, it is interesting to see how the AG reached her conclusion.

According to AG Kokott,
35. Although the de minimis notice has no binding legal effects, as I have just shown, it would be a mistake to regard it as of no importance at all in law for proceedings concerning cartels. Publications like the de minimis notice are in the nature of ‘soft law’ the relative importance (sic) of which in cartel proceedings, at the European and the national levels, should not be underestimated [...]
38. The Commission’s leading role, firmly anchored in the system of Regulation No 1/2003, in framing European competition policy would be undermined if the authorities and courts of the Member States simply ignored a competition policy notice issued by the Commission. It therefore follows from the duty of sincere cooperation which applies to all the Member States (Article 10 EC, now Article 4(3) TEU) that the national authorities and courts must take due account of the Commission’s competition policy notices, such as the de minimis notice, when exercising their powers under Regulation No 1/2003 [...]
39. [...] even though no binding requirements concerning the competition-law assessment of agreements between undertakings arise for national competition authorities and courts from the Commission’s de minimis notice, those authorities and courts must nevertheless consider the Commission’s assessment, as set out in the notice, of what constitutes an appreciable restriction of competition and must give reasons which can be judicially reviewed for any divergences (AG Kokott in C-226/11, at paras. 35-39, references omitted and emphasis added).
In my view, this is quite an amazing exercise of saying one thing and the opposite in the space of less than 10 paragraphs. Reading the conclusion suggested by AG Kokott, one is left scratching his head and thinking "so, no legal effects, huh?":
Consequently the national competition authorities and courts are free to proceed against agreements between undertakings below the thresholds of the de minimis notice, provided that they have taken due account of the Commission’s guidance in the notice and that, in the particular case, there is evidence, other than the market shares of the undertakings concerned, which suggests that the effect on competition is appreciable (AG Kokott in C-226/11, at para. 43, emphasis added).
I think that this is a very dangerous step that follows the rocky path of attaching (soft!) legal effects to soft law instruments, and I sincerely hope that the CJEU will only follow the position advanced by AG Kokott in paragraphs 26 to 34 of her Opinion in Expedia. More specifically, the preferable answer to the reference for a preliminary ruling by the French Cour de Cassation would be very short: "[a]s the Court has found in another connection, Commission notices in the area of EU competition law do not have binding legal effect for national authorities and courts. That is so also in the present case with regard to the de minimis notice" (AG Kokott in C-226/11, at para. 26). Any other answer will open a Pandora's box.